A Simple Mean-Reversion Strategy for FTSE 100
Overview of the RSI Divergence Strategy
The FTSE 100 is one of the most traded indices in the world, but it behaves very differently from the Nasdaq and is usually very range bound. Most strategies that work for the US Indices therefore don't perform well on the FTSE Index and the opposite. This is why we came up with the RSI Divergence Strategy, a popular mean-reversion approach that utilizes the RSI divergence indicator made by ProRealCode to identify reversal points. In this post, we will explore how to use this simple yet effective strategy to swing trade the FTSE 100.
As you all know we believe in a simple approach to trading strategies and that is why this strategy uses two entry conditions and only one exit condition plus an added stoploss, in total we use 4 conditions for an entry and exit.
This strategy is designed for the daily timeframe on the british index FTSE 100, which means it is a swing strategy, the usual holding period is around 7-8 days. If you are looking for more RSI strategies you might want to check out the RSI Divergence Strategy on US Crude Oil.
Our goal with these strategy posts is never for you to import the code and put it on live trading right away, we want to give you inspiration to create and test new ideas based on our findings. If you want to create a mean reversion strategy yourself but don't know where to start, read our How to Create Winning Mean Reversion Strategies guide, it has everything you need to start building a strategy. Trading is not the same for everyone and the strategies that work for us might not work for you, it is all about trading what you feel confident in.
With that said, here is the backtest.
Setup for Backtest
Market: FTSE100 (FTSE)
Contract: 1 € per point
Broker: IG
Testing environment: ProRealtime 12
Timeframe: Daily
Time zone: CET
No fees and commissions are included.
Result
Total gain: 10 428.7 €
Average gain: 36.34 €
Total trades: 287
Winners: 181
Losers: 105
Breakeven: 1
Winrate: 63%
Max drawdown: –856.4 €
Risk/reward ratio: 1.17
Total time in the market: 34.55 %
Average time in the market: 7 days, 16 hours
CAGR (10 000 € in starting capital): 2.9 %
Entry Conditions
Long Entry
MA[10] is higher today than yesterday.
A bullish signal from the RSI Divergence Indicator [3,40,70,20].
Short Entry
MA[40] is lower than yesterday.
A bearish signal from the RSI Divergence Indicator [3,20,70,20].
Exit Conditions
Long Exit
A bearish signal from the RSI Divergence Indicator [3,40,70,20]
Or if the number of bars since entry exceeds 40.
Short Exit
A bullish signal from the RSI Divergence Indicator [3,20,70,20]
Or if the number of bars since entry exceeds 40.
Code
ProRealTime
FAQ
Q: Am I free to use this strategy however I want?
A: Sure! But we're happy if you refer to our website and keep the creator's name in the code.
Q: I'm using another platform, can you write the code in another language?
A: No, sorry. We might add code in more languages later to the website, but until then, we recommend you try ChatGPT or something similar to help you rewrite it.
Q: Why does my backtest look different when I run the code?
A: The strategy might give different backtest results for several reasons, like added spread or fees, the wrong time-zone settings, or that you're using another type of contract.
Q: Will I make money if I run this strategy live?
A: We don't know. We're not financial advisors, we're just traders sharing our ideas.
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